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Q. It is impossible for economic growth in a small country to lower that country's economic welfare, regardless of the bias of the growth. Explain.
Answer: This is a true statement that the reason economic growth may possibly hurt a country is if the terms of trade effect counters and dominates the growth effect. In the case of the miniature country there are no terms of trade effect.
Q. It is probable that trade based on external scale economies can leave a country worse off than it could have been without trade. Illustrate how this could happen. Answer:
Q. Explain why the distinction between debt and equity finance is useful in analyzing the response of developing countries to unforeseen events such as recession or terms of trade
Q. An export subsidy has the reverse effect on terms of trade to the effect of an import tariff. Domestically a tariff will raise the price of the import good, deteriorating the
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